Borsa Italiana probe edges EU financial services market closer

By Stewart Fleming

Date: 22/09/05

A decision by the Italian competition authorities to launch an investigation into whether the clearing and settlement operations of Borsa Italiana, the Italian stock exchange, are anti-competitive, could speed up moves towards streamlining the provision of cross-border financial services in the EU.

"This is a very interesting development which has the potential to accelerate the consolidation of both stock exchanges and securities trading infrastructure in the EU," said Graham Bishop, a financial services market consultant. But, he added, much would depend on the precise terms of any decision which the Italian competition authorities come to.

Charlie McCreevy, the internal market commissioner, has repeatedly stressed that the fragmentation of clearing and settlement systems in the EU and the lack of competition are a barrier to creating a genuinely single market in financial services. "I am stating the obvious, but it bears repeating: what we need is a more liquid pan-European market with lower costs. Cross-border clearing and settlement remains expensive, sometimes prohibitively," he told an audience in Luxembourg on 13 September, a day before the Italian investigation was launched. He has warned that, as a last resort, legislation could be introduced to improve cross-border trading and settlement efficiency.

Both he and Neelie Kroes, the competition commissioner, have made it clear that they are willing, where appropriate, to use the tools of competition policy to improve the functioning of the internal market.

They will have discussed Europe's clearing and settlements systems with this policy objective in mind.

Earlier this year the UK Competition Commission, in announcing its provisional findings on the proposed acquisition of the London Stock Exchange by Germany's Deutsche Börse AG or Paris-based Euronext, made clear that either bid would "substantially lessen competition" because of the bidders' ownership or control over clearing services.

Deutsche Börse, like the Borsa Italiana, operates a so-called vertical silo of integrated securities trading, clearing and settlement.

If Italy's competition authorities found such a structure anti-competitive, their decision could undermine Deutsche Börse's hopes of expanding within the EU market through acquisition on the basis of its current vertical silo business model.

Euronext has abandoned the vertical silo model and has indicated that it would be prepared to reduce further its residual shareholdings in clearing (it settles through the independent Euroclear) in order to get clearance to bid for the London Stock Exchange.

There have also been reports this month that some Euronext shareholders are pressing the company to consider bidding for Deutsche Börse, if the latter also looks likely to abandon its vertical silo model. Euronext is already lined up with Borsa Italiana to buy Euro MTS, the privately owned Italian government bond-trading platform.

In recent months the protectionist policies of the Italian authorities in relation to the financial services sector have rarely been out of the news.

Bank of Italy Governor Antonio Fazio has come under intense pressure to resign on the grounds that he unfairly favoured an Italian bid for Bank Antonveneta rather than an offer from Holland's ABN Amro.

• Stewart Fleming is a freelance journalist based in Brussels.

Author suggests that a decision by the Italian competition authorities to launch an investigation into whether the clearing and settlement operations of Borsa Italiana, the Italian stock exchange, were anti-competitive, could speed up moves towards streamlining the provision of cross-border financial services in the EU.